Iraq and the Iraqis have been in difficult situations since 2003 at the political and economic levels. The CPA’s economic objective was to turn towards a market economy, but it faced great challenges, explained by Mudher Mohammed Saleh, adviser and economic adviser to Prime Minister Haid al-Abadi, the first of which was terrorism which formed the biggest challenge to the Iraqi state. And the other challenge is the financial crisis, because of the rentier economy of Iraq, which relies in its budget on oil by 93%, which in itself is a challenge, which puts the country in a state of warning and exceptional situation, as the drop of oil from $ 105 a barrel at the end 2013 – the beginning of 2014, to the level of $ 30, means that Iraq loses 65% of the value of its revenues.
Saleh confirms that the financial situation is still difficult and the difficulty is as follows:
– The Weakness of cash flows due to lack of collection and lack of oil resources.
– The weakness of the tax system in Iraq, which “enjoys a tax holiday.”
The Iraqi monetary system was based on the so-called partial coverage, and therefore the foreign assets constitute a small fraction of the cost of cash issued in Iraqi dinars, while the monetary system after 2003 that the entire Iraqi dinar covered in foreign currency by one and a half times, thus, it is in itself a difficult currency that means : Any one who gets the dinar or the dollar is an equal issue , and the problem remains in the value of the Iraqi dinar, as the central bank still defends it in normal circumstances for reasons:
– Reserves defend the value of the dinar by the Board of Directors of the Central Bank, which is the only one that maintains the value of the dinar with certain lines can not be exceeded.
– The purchasing power of the dinar is linked to the purchasing power of income. Any cut or discount on income directly affects its purchasing power.
Because of the rentier economy, the dependence of the private sector on foreign currency resources in the state, and the scarcity of Iraq’s exports, Iraqi society is transformed into a consumer society. There is no productive private sector, and the import figures of consumer goods are very large. Here, the stability of the currency must be maintained and this depends on the currency flows.
Reserves of the Central Bank of the currency :
Saleh said that the Central Bank of Iraq is satisfied with its reserves, and the situation is stable, noting that the “financial rescue plan,” which is reviewed daily and weekly, monthly and quarterly through a meeting of the Council of Ministers, scrutinize and examine the economic situation, and examine the budget revenues to maintain financial sustainability, and flows should meet the requirements according to its priority, at the top of which fight terrorism, then the salaries of employees there noting that there are more than 4 million
government employees and 3.7 million retirees, plus 2 million Iraqis registered under the so-called social welfare network and receive monthly salaries to lift them out of poverty. According to the system of maintenance, each one is responsible for four people, which means that all the Iraqi people receive salaries from the state directly and indirectly.
The Ministry of Planning is ringing the alarm that is threatening the body of the Iraqi state and the future of development in a country whose government is forced to borrow for the third consecutive year to secure $ 42 billion a year to cover its operating budget. Which includes the sub-budgets of operating income and expenses, which is a comprehensive detailed plan, a control planning tool and a performance appraisal standard. The Iraqi State works to support the private sector to work again in the local market. This requires legitimizing its work to contribute to economic development.
“The only negative here is that we are one of the rentier countries that depend on a single supplier that is governed by a global market, which puts us in constant danger,” says the Ministry of Planning.
Saleh revealed that “the strategy of the new state called 2030 included many solutions capable of getting rid of the file of dependence of citizens in full form on employment in the public sector, and to go to the private sector with sufficient guarantees that will allow them to live even when leaving work or retirement.
The 2018 budget relies on fiscal consolidation by reducing deficit and debt accumulation by cutting unnecessary spending. This coincides with Iraqi Prime Minister Haider al-Abbadi’s tightening of operating expenses for the three presidencies, a big sign for Abadi to start reforming from the top to keep the sustainability.
Saleh stressed the existence of important sectors that cost the state budget a difficult number, but they are able to maximize their resources, namely the customs and electricity sectors, and the government continues to activate laws and regulations on taxes and electronic collection and consumer protection.
Saleh said that «2018 will see the opening of the Market Council, which includes representatives of the public and private sectors to reach the market economy, rather than oscillating between two different economies, the socialist and free».
The deputy head of the parliamentary economy and investment committee, Noura al-Bijari, called for developing the private sector and legislating laws to protect its employees and “start implementing the five-year development plan effectively.”
she added ” the functional body now suffers from sagging and reaching saturation and explosion as there is no state that employs one-third of its population in the government sector, and the individual thinks that he is unemployed if he does not find a government job , so if there were laws that protect him in the private sector and grant him the privileges he receives in the public sector, he would not ask for a government job. ”
she added “The time has come to change the culture of the government job and the legislation of the Social Security Law, which guarantees workers in the government sector a pension, and we will soon reach equality between the two jobs. But the most important is the development of the private sector, which is still hesitant to work locally,and the number of operational opportunities is still below the required level . »
As for the private sector, its representative Ismail Abdul Hussein, who was the Undersecretary of the Minister of Labor and Social Affairs, said: “We have put together with experts a study that will end the youth orientation towards government jobs and turn them into the private sector. We are currently in the process of holding a series of meetings with officials of various ministries and the parliament to legislate a law that allows us to work within the law on a new approach applied in a number of countries and succeeded significantly ». He explained that the plan provides for “the establishment of a body or any other name for the employment of the unemployed through collective lending operations, for example every 50 young people grant a loan and establish a company under the supervision of the developer approved in the investment law, which must determine the feasibility study in all details.
Abdul Hussein pointed out that «public companies have proved its failure, but in the case of the establishment of private companies will be successful, because it is based on the basis of profit and loss and not guaranteed salary at the end of each month, whether worked or not». He concluded that «all young people get a loan for their project that does not exceed 7 years, and must be within the feasibility study of the project to repay the loan during this period.
The benefit of the developer, who prepares the feasibility study and design of the project, a percentage must be put for it that does not more than 15 percent of the capital of the project, provided that the payment of the amount of the developer through the profits of the project and during the term of the loan ».
All eyes are on the private sector and its role in changing the Iraqi economic system to contribute to economic growth and stability, diversification of the country’s resources, and exit from the rentier economy to the diversified economy, ie maximizing non-oil revenues. In this context, many institutions were established and a number of procedures and programs were adopted to turn to the private sector and the gradual liquidation of public sector enterprises without harming the labor force through their involvement in medium and small projects with government support.
However, most of these programs remained dead on paper because they were not realistic because they were ready recipes for the transformation to the private sector away from the economic reality in Iraq and its requirements, in addition to the bureaucracy of the state that hinders development.
A good example of the success of the private sector in Iraq what was done by of the Mas Holding Group to set up four power plants and factories to produce cement and melting iron.
And the banking and economic adviser Samir al-Nasiri said “In order to strengthen the role of the private sector, the government must first establish a higher council for the private sector consisting of representatives of the private sector and the government. It will manage, supervise, review and evaluate the programs and policies set for making the decisions required to achieve the central economic goals through partnership and cooperation between the private and public sectors.
This means engaging the private sector with a greater role in economic decision-making and market leadership by:
* Improving the business environment in Iraq and providing an encouraging investment climate to attract national and foreign capital and encourage the achievement of partnerships between the public and private sectors.
* Work to create a new legislative environment based on its reference to article (25) of the permanent constitution and strategies and laws on economic reform and development of the private sector to ensure its activation and leadership of the market in the future.
* To maintain and activate partnership and dialogue and cooperation between the private and government sectors.
* Develop policies, mechanisms and strategies in following up its implementation to resolve the transition to time-programmed stages to market economy.
* Work to provide additional sources of funding for the state budget by adopting resource development and diversification towards raising the proportion of resources other than oil in GDP.
* Cooperation to ensure the implementation of central plans to provide infrastructure to encourage and develop the private sector in industry, trade, agriculture, tourism, mineral wealth, energy and services, and the development of small and medium enterprises, achieving comprehensive and sustainable development
* Activate the role of specialized banks and private banks to provide soft loans to the national private sector.
* Coordination and cooperation with ministries and financial and statistical institutions concerned with building a financial and statistical information base and ensuring its transparency.
• Participate actively with the government in the implementation of procedures to restructure public companies and facilitate partnerships with the private sector, and contribute to ensuring quality standards for local and imported products and services.
* Encourage private banks to invest in economic projects to enhance its contribution to GDP and accelerate legislative amendments to achieve this goal.
Iraq in 2030
The draft national development plan for the years (2018-2022) will lead to a democratic system of political economy of Iraq approaching the concept of (state – market / social) which will inevitably lead to the birth of objective conditions in achieving the goals of the social market system with its three pillars :
First, creating the market: creating patterns of institutional ownership based on the system of companies and facilitating its registration and its license through simplification of procedures as a general policy towards improving the business climate.
Second: Financing the market: by directing the revenues of oil Rentier and converting them into soft lending capacities for the productive market forces (the lending funds financed by the sovereign supplier, for example the program of lending 5 trillion dinars to the private sector from the Central Bank of Iraq).
The third and last is the protection of the market: by the unified national pension fund of the state and the private sector. Thus, the state will undertake the guarantee and protection of competitiveness prevent monopoly and spread the state of economic and social welfare by promoting the efficiency of production and the equitable distribution of incomes and wealth. This is the philosophical structure that sustains the market / social sustainability. This is confirmed by Salih to build a diversified national economy in accordance with the strategy of private sector development until 2030 (*).
(*) Financial and economic adviser to the Iraqi Prime Minister. This is what was published on the network of Iraqi economists in September 2017
Shatha Khalil Researcher at
Rawabet Center for Research and Strategic Studies